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Will My Coronavirus EIDL Business Loan Wind Up Garnishing My Social Security?

Written by Steve Rhode

Question:

Dear Steve,

SBA web site says the borrower does not personally guarantee EIDL loans under (I think) $200,000 (mine is for $40k). The note does say that the borrower promises to pay though.

If I had to default in the future could the SBA garnish my SS benefits (likely the loan will outlive me and certainly outlive my time working) given I only promised to pay but did not specifically guarantee performance?

They did file a UCC lien against my business name (Sch C Sole Proprietor) but there are no significant assets that would really attach to. In my mid 60’s and likely to work 5-7 more years and after that will have limited resources.

Chris

Answer:

Dear Chris,

The entire COVID PPP and EIDL process have turned into the classic Ready-Shoot-Aim issue. The loans were released and the rules keep changing.

I’m not sure the brightest minds can figure out the shifting mess with either the EIDL or PPP loans. But let me give you my take on this as I can best figure it out today.

The Economic Injury Disaster Loan (EIDL) is not part of the forgivable Paycheck Protection Program (PPP). Except, $10,000 of the EIDL can be forgiven if used for certain expenses.

An interesting issue is it appears you can get a PPP and use that money to pay off an EIDL and the PPP would be 100% tax-free forgivable.

So while your loan was for $44,900 and $10,000 is potentially forgivable as an advance, you could apply for $34,900 in a PPP.

The SBA says, “The amount of the EIDL loan to be refinanced does not include the amount of any EIDL “advance” (also referred to as an EIDL “grant”) received by the PPP Borrower, because the EIDL advance does not need to be repaid.”

If you do elect to go with this option then you should be aware, “For PPP loans where SBA Form 2484, “Lender Application Form – Paycheck Protection Program Loan Guaranty,” Section D, Loan Amount Information, included an amount for the “Refinance of Eligible Economic Injury Disaster Loan, net of Advance,” PPP Lenders must disburse and remit loan proceeds used to refinance an EIDL loan directly to SBA (not to the PPP Borrower).”

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So it appears you would still keep the remaining cash from the EIDL but that loan would be paid off by the PPP.

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It appears the program you are part of makes a huge difference. “The average forgivable EIDL advance during COVID-19 has been $4,360 and the average forgivable PPP loan, $206,000.” – Source

If you stick with the EIDL, don’t get the $10,000 forgiven, and later default then I think it is pretty clear, as it stands today, that the default would wind up as a garnishment against your Social Security payments.

I’d give the lender you worked with a call and talk to them about refinancing the EIDL with a PPP.

And to be clear, I can’t see who the actual borrower is in the redacted document you sent me. However, these things never end wonderfully in default. And considering this is a sole proprietorship under your Social Security Number my bet is you are at risk of an administrative Cluster F even though the documentation does say the SBA waived any personal guarantee on advances and loans below $200,000.

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About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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